Template-Type: ReDIF-Paper 1.0
Author-Name:  Harry Pickard
Author-Name-First: Harry
Author-Name-Last: Pickard
Author-Email: harry.pickard@newcastle.ac.uk
Author-Workplace-Name: Newcastle University Business School, Newcastle University, United Kingdom
Author-Name:  Thomas Dohmen
Author-Name-First: Thomas
Author-Name-Last: Dohmen
Author-Email: tdohmen@uni-bonn.de
Author-Workplace-Name: Economics Department, University of Bonn, Germany
Author-Name:  Bert van Landeghem
Author-Name-First: Bert
Author-Name-Last: van Landeghem
Author-Email: b.vanlandeghem@sheffield.ac.uk
Author-Workplace-Name: Department of Economics, University of Sheffield, United Kingdom


Title:   Inequality and Risk Preference
Abstract: This paper studies the relationship between income inequality and risk taking. Increased income inequality is likely to enlarge the scope for upward comparisons and, in the presence of reference-dependent preferences, to increase willingness to take risks. Using a globally representative dataset on risk preference in 76 countries, we empirically document that the distribution of income in a country has a positive and significant link with the preference for risk. This relationship is remarkably precise and holds across countries and individuals, as well as alternate measures of inequality. We find evidence that individuals who are more able to understand inequality and individuals who fall behind their inherent point of reference increase their preference for risk. Two complementary instrumental variable approaches support a causal interpretation of our results. 
Length: 37 pages
Classification-JEL: D91; O15; D81; D01 
Keywords: Income inequality; risk preference; risk sensitivity

Creation-Date:  2023-01
File-URL: https://www.econtribute.de/RePEc/ajk/ajkdps/ECONtribute_216_2023.pdf
File-Format: Application/pdf
File-Function: First version, 2023
Number: 216
Handle: RePEc:ajk:ajkdps:216